Conflict in Gaza and a "tsunami" of change in the labour market driven by AI pose the biggest threats to economic growth in the region, the International Monetary Fund warned on Sunday.
The IMF’s managing director Kristalina Georgieva addressed the Arab Fiscal Forum in Dubai to suggest a road map out of economic uncertainty in the region.
The forum was part of the curtain-raising pre-summit sessions held ahead of the three-day World Governments Summit, which officially begins on Monday at Madinat Jumeirah.
Ms Georgieva said the global economy had proved remarkably resilient in the face of continuing wars in Gaza and Ukraine, and disruption to trade routes.
Despite that, a decade of slow growth lies ahead as nations look to diversify economies and capitalise on new technological trends.
“While uncertainties are still high, fuelled by the tragic developments in the Gaza-Israel conflict, we are more confident about the global economic outlook,” she said.
“The global economy has been surprisingly resilient and with inflation going steadily down, we are heading for a soft landing in 2024.
“We project growth for this year to be 3.1 per cent, but we cannot declare victory prematurely.
“Medium growth prospects remain anaemic at around 3 per cent year after year in comparison with the historical average of 3.8 per cent in the decades before the pandemic.
“Prospects for boosting growth are still overshadowed by high interest rates and very importantly by the need to restore fiscal sustainability.
“Turning to the immediate prospects for the Middle East and North Africa, we expect GDP growth to reach 2.9 per cent this year.
“This is higher than last year, but below our October projections.”
Global impact as war rages
Economically, the impact of the conflict has been devastating in Gaza where activity dropped 80 per cent from October to December compared to a year earlier.
Meanwhile, in the occupied West Bank, activity dropped by 22 per cent.
The Palestinian economy's dire outlook is worsening as the conflict persists with only durable peace and political solution likely to change economic prospects.
The conflict is negatively affecting tourism, a lifeline for many across the region, with the fiscal impact seen in multiple areas, such as increased spending for social safety nets, defence and security.
Across the region and beyond, the wider impact of the conflict is being felt through rising freight costs and reduced Red Sea transit, which is down by more than 40 per cent – almost half of what they were a year ago.
The disruption compounds the challenges of economies still recovering from previous shocks such as global pandemics and natural disasters.
The longer the fighting goes, the higher the risks of conflict widening, aggravating the economic risks, Ms Georgieva said.
In January, the World Bank said the global economy was facing its slowest half-decade growth in 30 years, driven by Middle East conflict.
Between 2010 and 2020, the world averaged an average economic expansion of 3.1 per cent.
Despite the slow growth, the IMF said global economies should prepare for transformative change in labour markets by bolstering digital infrastructure.
“If we are to make full use of technological advancements, like the development in artificial intelligence, we must be ready for them,” said Ms Georgieva.
“We have done some analysis in the IMF that shows roughly 40 per cent of jobs over the next few years will be exposed to artificial intelligence. This is like a tsunami eating into labour markets.
“Some jobs will disappear altogether, some jobs will no longer exist, other jobs will be enhanced or diminished. And we know that we can only take advantage of opportunities if we are ready for them.
“What our analysis shows is that the level of preparedness for the arrival of artificial intelligence is very different across the world.
“Accessibility for everyone is very important in terms of labour market development and skills development for the new world of artificial intelligence," said Ms Georgieva.